Winning games like KBC, Indian Idol, and many others is a dream come true for many, but some forget that the government also wants a share of the winnings. So, while imagining all the cool things you can do with your jackpot, it’s essential to know how taxes play into the picture. Income from winning awards and prizes such as lottery, puzzles, online gaming or TV game shows, card games, etc are considered as IFOS under the income tax. The winner may receive such income in cash or kind. Additionally, Section 115BB of the Income Tax Act charges the tax at a flat rate of 30%
Income Tax on Awards & Prizes
Individuals may earn such incomes in the form of cash, kind, or awards/prizes. The tax treatment depends on multiple factors.
If the Award of public interest is approved by the Government, it is exempt from tax. Awards such as National awards, Nobel prize, Arjuna award, Bharat Ratna award, etc notified by the government under Sec 10(17A) is exempt from tax in the hands of the receiver.
Awards such as Filmfare, ICC Cricket awards, etc are taxed as IFOS income since they are not approved by the Government
Prizes earned are taxable in the hands of the winner as Income from Other Sources income (IFOS) as per Sec 56(2) of the Income Tax Act. Income from betting, gambling, sports events, horse race, etc are all taxable incomes
Tax Rate on winning lottery, puzzle, game show, horse race
The tax on lottery winnings, crossword puzzles, card games, etc. is a flat rate of 30%. After adding the health and education cess of 4%, the effective tax rate becomes 31.2%. The income is subject to a flat 30% tax rate, disregarding tax slab rates. In case the prize is received in kind, the tax will be determined on the market value of the received item.
Ajay won a lottery and received INR 5 lakh in cash and a diamond ring worth INR 1 lakh. He also has a Fixed Deposit Interest income of INR 1 lakh. He has invested INR 1.5 lakhs in Section 80C and also paid INR 25,000 as mediclaim. Calculate the tax liability.
|Income from Other Sources|
|Fixed Deposit Interest||1,00,000|
|Winning from Lottery||6,00,000|
|Gross Total Income||7,00,000|
|Deductions under Chapter VI-A||(1,00,000)|
|Tax at slab rate||NIL|
|Tax at special rate (30%)||1,80,000|
|Total Income Tax||1,80,000|
|Health & Education Cess @4%||7,200|
|Total Tax Liability||1,87,200|
TDS on prizes & winnings
TDS under Section 194B is applicable on income from lottery, betting, gambling, etc. If the income exceeds INR 10,000 during the financial year, the prize distributor is liable to deduct TDS at 31.2% when making the payment.
TDS under Section 194BB is applicable on income from the activity of owning and maintaining horse races. If the income exceeds INR 10,000 during the financial year, the horse race organizer is liable to deduct TDS at 31.2% when making the payment.
ITR Form & Due Date
- ITR Form: Winnings from the lottery, puzzles, betting, etc are treated as Income from Other Sources. The taxpayer should file ITR-1 (if income is upto INR 50 lacs) or ITR-2 (if income exceeds INR 50 lacs) on the Income Tax Website.
- Due Date – 31st July of the Assessment Year. For eg: Due Date to file ITR of FY 2023-24 (AY 2024-25) is 31st July 2024.
Special Provisions for tax on winning lottery, puzzle, game show, horse race
If a taxpayer has income from winning a lottery, puzzle, card game, gambling, etc., they need to consider the following points.
- The taxpayer cannot claim deductions under chapter VI-A such as Sec 80C, 80D, 80G, etc for such income
- The taxpayer cannot claim any expenses against such income
- Income Tax on such income is at a flat rate of 31.2% and thus the taxpayer cannot claim the benefit of the basic exemption limit and slab rates
- The taxpayer cannot claim any refund of the TDS deducted on such income
- Loss from owning and maintaining a horse race cannot be set off against any other income except horse race income. However, the taxpayer can carry forward the remaining loss for 4 years
No, the TDS paid for winnings from lotteries and game shows are non-refundable.
Income Tax on winning the lottery, puzzles, card games, etc should be calculated at 31.2% of the total prize money. If the prize is paid in kind such as a car, jewellery, holiday trip, etc the tax should be calculated on the market value of the prize.
Yes, you have to pay tax on winning from Dream 11. Dream 11 will deduct tax at the flat rate of 31.2% on your net winnings and will transfer the remaining amount to your account.
No, “Winnings from gambling, virtual digital assets (VDA), online gaming, lotteries, game shows or betting are not eligible for tax rebate under Section 87A.